The founders of commodity hedge fund Juno Mother Earth Asset Management stole almost $2 million and inflated the fund's assets under management by a factor of 10, the Securities and Exchange Commission said.

The regulator yesterday sued Eugenio Verzili and Arturo Rodriguez for defrauding clients. Among their malfeasances were lying to investors about how much the New York-based firm managed and how much they themselves invested in the fund.

"Verzili, Rodriguez and their firm violated the most fundamental duties of an investment adviser by lying to their clients and misappropriating the money entrusted to their care," George Canellos, head of the SEC's New York office, said. "They compounded their wrongdoing by providing false information in filings with the SEC that are designed to ensure that registered investment advisers make full disclosure to investors."

Verzili and Rodriguez issued bogus promissory notes to hide their theft of about $1.8 million from Juno Mother Earth clients, according to the SEC complaint. The two used the money to pay the firm's operating costs, including payroll, rent, travel, meals and entertainment. The two also claimed to manage $200 million, even though the firm never had more than $17 million in assets, the SEC said.

The defendants also allegedly told investors that they had $3 million invested in Juno funds; in fact, according to the complaint, they had no money at all invested.

"Hedge fund investors derive comfort from knowing the fund's adviser has so-called 'skin in the game' by investing its own money side-by-side with investors and sharing the same risk and rewards," Bruce Karpati of the SEC's enforcement division said. "These managers deliberately distorted their skin in the game."

The SEC is seeking permanent injunctions against the men, as well as fines and disgorgement. The regulator said that Verzili lives in Miami Beach, Fla., and Rodriguez is believed to be in Costa Rica.